Digital River Loses Patent Suit Despite Doing What Was In The Patent Two Years Before Patent Was Filed

from the broken-system dept

Last week a jury in the federal district court in Marshall, Texas (patent trolls' favorite court) gave a ruling that was a clear miscarriage of justice -- and this is a case where I actually know quite a lot about the details and have firsthand knowledge that the patents are 100% bogus. The case involves a patent troll called DDR, which was built out of the ashes of a failed dotcom called Nexchange, which tried to build affiliate style stores that could be embedded in other websites, with their look and feel. DDR sued a few companies, including Expedia, Travelocity, Orbitz, Digital River and World Travel Holdings. Everyone but Digital River and World Travel Holdings settled. The main company here is Digital River -- and the key patent, 6,993,572 is ridiculous and never should have been granted. Even Nexchange admitted it wasn't doing anything new -- though it insists it was the first to do it "on the internet."

It wasn't.

Digital River pointed out that it had been doing the same thing since its founding more than two years before Nexchange filed for its patents. I can confirm this first hand. In June of 1998, I started working for a company called Release Software. Our main competitor? Digital River. We were always up against each other in trying to do deals to build exactly these kinds of stores. In fact, by the time I started (months before these patents were filed), Release was already supplying "store within a site" offerings to a number of sites, including Egghead (remember them?), Canadian electronics giant Futureshop, and had also done download "kiosk" sites for software companies like Adobe and Intuit -- all of which were designed to match the look and feel of the original site exactly.

DDR's response to the claims that Digital River was doing it first was that they did it badly, so it didn't count. Seriously. From the Joe Mullin article linked above:

When DDR lawyers got their chance to cross-examine Pichler, they flipped through many of the same webpages, then talked about differences between the host pages and the store pages that Digital River served up. For example, on the Digital Frontier website, the store page was missing the navigation bar present on the main Digital Frontier site.

Pichler admitted that some of the pages looked different. “Our goal was to replicate the look and feel of the website,” but each client had its own peculiarities, and some stores matched their hosts better than others.

To some extent, this is true. Digital River was bad at matching the look and feel of clients. But we weren't. In fact, I remember that was part of our sales pitch to beat Digital River on deals. When we built the stores, they really matched the look and feel. Shoppers on Egghead had no idea that they'd really left Egghead's main site to enter our site, for example. Even so, I'm not sure that any of this matters. Release clearly was doing what DDR now claims Nexchange "invented" (well after we had been doing it). And, even given all that, does anyone think it's reasonable to claim that the only reason Digital River couldn't "match the look and feel" was because of some great "invention" of "matching the look and feel" in the patent? That's insanity.

But, this is East Texas... where insanity rules. On Friday, the jury ruled in favor of DDR, saying that the patents were valid and infringed upon by Digital River (and WTH). It ordered both companies to pay $750,000 each, which is much less than what DDR was asking for but is still ridiculous. What the patent explains was not in any way "new" in September of 1998. I was already working on new deals to provide the same thing months prior, and the company I worked for already had numerous deals where we exactly matched look and feel.

Either way, just the idea that anyone could get a patent on the idea of integrating an e-commerce store into another site is pretty ridiculous. As far as I know, when we were at Release, we didn't even bother filing for such patents, because, seriously, who would patent something so damn obvious?

Finally, this once again highlights the difference between an idea and actually executing in the market. As Mullin highlights, even if it was true that Digital River didn't match the look and feel exactly, the company thrived and is still in business, making over $300 million last year. Nexchange completely flopped. So if matching look and feel exactly was so important... then shouldn't Nexchange have thrived? Hell, shouldn't the company I worked for have thrived as well? It didn't. It flopped, too. Digital River beat us silly, because while we were focused on silly things like matching the look and feel exactly, it was focused on what customers at the time actually wanted: more things to sell and better tools to manage the store. We couldn't keep up with their platform (or their ability to source products) and Release eventually shut down. As for Nexchange -- I never heard of them, and I was in charge of keeping our competitive matrix up to date with all of our competitors. If they were in the same market, they sure didn't make a splash.

Execution in the market is what matters. Digital River did it. Nexchange did not. The only thing this ruling has done is to punish the company that actually executed by making them give money to the guys who completely failed in the market. It goes against everything that we, as a society, should be encouraging. It's taking money from the successful companies to give it to the ones who failed.

On Friday [August 3], the ACLU settled a class action lawsuit, pending court approval, against officials in the East Texas town of Tenaha and Shelby County over the rampant practice of stopping and searching drivers, almost always Black or Latino, and often seizing their cash and other valuable property. The money seized by officers during these stops went directly into department coffers. It was highway robbery, targeting those who could least afford to challenge the officers’ abuse of power, under the guise of a so-called “drug interdiction” program and made possible by Texas’s permissive civil asset forfeiture laws.

Hundreds, if not more than a thousand, people have been stopped under the interdiction program. From 2006 to 2008, police seized approximately $3 million from at least 140 people as part of the program. None of the ACLU’s clients were ever arrested or charged with a crime after being stopped and shaken down.

[...more...]

Maybe there's some hope of shutting down the gang in Marshall? Cleaning up East Texas a little more?

Re: Why east Texas

An excellent question. I would bet it has something to do with it being all "Old Westy." Probably no one there owns a computer, so any patent of "something that exists 'ON THE INTERNET'" is automatically seen as incomprehensibly brand new, and probably a little bit witch craft. I bet that it is a lot harder to win a patent case of "something something on a horse" or "something something on a cows udders" in East Texas

The solution is to move some tech start ups down there. Make East Texas the new Silicon Valley. With all the new tech jobs, people who are less yokel and more educated about the new-fangled computer magic will move into town, thus adding people who actually know about tech patents to the jury pool there.

Re: Re: Why east Texas

I bet that it is a lot harder to win a patent case of "something something on a horse" or "something something on a cows udders" in East Texas

Not if you say "something something on a horse on the internet" or "something something on a cows udders on the internet". It would promptly get your patents granted. I do have my doubts on how cow udders would fit on the internet but I can't help but to think that it will fit Rule 34...

This story gave me two thoughts...

First (and sorry to all of you Big Government haters out there) is that all patent cases need to be handled by a special court that only deals in patent cases. This would be located in only one physical location. The jury, if one is involved, should be comprised of people who have knowledge of the industry in which the patent was issued for. In other words, using the above case as an example, the jury members must have some working knowledge of software development and/or website design. Since no matter where you would physically locate the court you would never have a large enough pool of people for the jury, make the jury pool the entire United States. The jury selection can be done remotely (maybe a teleconference video system at the local level to allow them to participate in jury selection). The cost of travel, lodging, etc. of the jury is by default assigned to the plaintiff and is taken out of any awards (or becomes a bill if they lose). What you get with this type of system is that 1) you get a judge that understands patents and jury that should understand the industry, 2) you increase the cost to file, hopefully raising the bar and weeding out the patient trolls on the little claims.

The second thought I had when reading this, is that it’s a shame that the patient office cannot be sued directly over ridiculous patents. There needs to be away to independently have patents revoked and to effect the work records of the people involved in granting questionable patients. And if an individual has too many losing judgments against them, then they should be subject to termination. It can work like the calling out sick point system that a lot of companies use. You can only have so many points before actions are taken. Point fall off after so long, so this would really only effect people that are intentionally issuing bad questionable patents or those that are truly just bad at the job; the patent office really doesn't need either of type working for it.

Re:

It's in the financial interest of residents of Marshall to ensure that juries rule in favour of patent trolls.

More lawsuits means more judges and clerks. More lawsuits means more office space being leased to patent companies. More lawsuits means the need for more jurors (who receive compensation for their time). More lawsuits means more out-of-town lawyers at your local hotels. More lawsuits means more meals and catering from local restaurants. And so on.

Waitwaitwait...hold on just a fracking second...

Re: This story gave me two thoughts...

"all patent cases need to be handled by a special court that only deals in patent cases"

Unfortunately, CAFC is a prime example of why what you are suggesting is a bad idea. They have clearly lost perspective and have a reason to make patents more powerful. If a court only dealt with patent litigation, any rulings that diminished the value or power of the patent system would effectively diminish the power of the court itself - and who wants to make themselves less important?

The opposite of what you are suggesting would result in more judicious results - take all litigation and spread it out as evenly across all courts equally. The only reason for local jurisdiction of court cases is to make the courtroom more accessible. If it were possible to have virtual courtrooms, spreading out the cases to give each court a relatively even exposure to all kinds of subjects would likely lead to more important (or at least more interesting) cases getting more courtroom attention.

As far as the jury members having more direct knowledge - I'm not sure if that would help either. People have bias. I remember a recent article talking about a juror (I think Apple / Samsung related) saying he was heavily influenced by the thinking that he would be angry if someone had "stolen" his idea.

As far as patents - particularly software patents are concerned, fixing their litigation is treating a symptom. We need to fix the patent system problem, or cut off an arm or something.

Re: Re: Why east Texas

As the duly appointed East Texas Ambassador to Techdirt (I live in Tyler), I feel the need to weigh in on this post.

I would bet it has something to do with it being all "Old Westy."

We are not "Old Westy". We are happy with our standard of living and don't need things like 'licktricity and 'puters in the houses of regular folk.

Probably no one there owns a computer, so any patent of "something that exists 'ON THE INTERNET'" is automatically seen as incomprehensibly brand new, and probably a little bit witch craft.

Untrue! We all get to access the interwebs by goin' on up to the libary. They have readin' books, interwebs, whiskey jugs, and other things that are of no consequence here. Plus there's no such thing as witchcraft. Everyone knows Jesus invented the interwebs and the 'puter. Since that is the case and we're all God fearing folk, we believe that whoever got patents on interweb stuff must be a follower of God and must, therefore, be right and deserves money. Since they get money, they tithe it to the church and the church makes money. It's all part of God's plan and you're probably too city-stupid to understand it.

I bet that it is a lot harder to win a patent case of "something something on a horse" or "something something on a cows udders" in East Texas

'Lectronic milkin' machines are all the rage here now, and they had patent protection (One of the earliest ones had that protection in 1907!). They go on cow's udders. U.S. Patent 481,271 deals with horseshoes. Horseshoes go on horses. They had patent protection at one time as well. There goes your whole argument.

The solution is to move some tech start ups down there. Make East Texas the new Silicon Valley. With all the new tech jobs, people who are less yokel and more educated about the new-fangled computer magic will move into town, thus adding people who actually know about tech patents to the jury pool there.

We don't need none of you city folk comin' here and ruinin' our way of life!

Re: Re: This story gave me two thoughts...

Re: No lawsuit needed

If the goal is to recoup some investment from a failed company

Wow, I was trying to think of a worse investment for the insurance companies after homeowner default insurance and I was having a hard time. And there you go, coming up with a worse investment. Now if they would just offer that insurance for restaurants, we could destroy the economy entirely.

Re: Re: This story gave me two thoughts...

A simpler solution might to be go back to having a requirement of providing a working model. Not a document the "describes" how something theoretically works but an actual working device or program. I'm not sure if the requirement should be on filing or simply be a requirement for beginning litigation. either way it make patents a protection for inventions, not ideas that might eventually become an invention after the problems are worked out. It also greatly limits but does not eliminate non-practicing entities (patent trolls) as they just need someone to be using the invention somewhere so they can bring the working model to court, they don't have to produce it themselves. However whoever is producing it may be vulnerable to counter suits which makes loaning it to a NPE much less attractive.

I've half a mind to release all of the software I have coded for personal use into the public domain anonymously. If a bunch of anonymous programmers were to start a free open source project... who are they gonna sue for patent infringement?

Re:

Re: This story gave me two thoughts...

First (and sorry to all of you Big Government haters out there) is that all patent cases need to be handled by a special court that only deals in patent cases. This would be located in only one physical location.

No, no, no, no, no. We have that (at the appellate level) and it does the exact opposite of what you want:

The second thought I had when reading this, is that it’s a shame that the patient office cannot be sued directly over ridiculous patents. There needs to be away to independently have patents revoked and to effect the work records of the people involved in granting questionable patients. And if an individual has too many losing judgments against them, then they should be subject to termination. It can work like the calling out sick point system that a lot of companies use. You can only have so many points before actions are taken. Point fall off after so long, so this would really only effect people that are intentionally issuing bad questionable patents or those that are truly just bad at the job; the patent office really doesn't need either of type working for it.

Testify

Re: Re: No lawsuit needed

I was being facetious, of course.

But taking it somewhat seriously for a moment; as far as an insurance company goes, it doesn't have to be a losing proposition. Structure it like bonds that come due when the buyer's company goes under. Insurance company collects rent until then, as well as perhaps a service charge.

The upside for whomever would buy into that could be releasing the funds only after bankruptcy proceedings have taken place. So then free from creditors, the account holder could take whatever they've paid in and start over or use it toward an early retirement.

Re: Re:

Re: Re: This story gave me two thoughts...

I concede, I had not thought of specialized courts in that manner. Also, not being all that familiar with the current varieties of courts available, I did not realize that we basically had a similar system already in place at the appeals level, which apparently has already shown this idea to useless.

I also agree (and have for many years) with those who suggested that we need to get rid of software patents. Actually, since reading Techdirt, I have expanded that view to just about all patents; I think they all need to go.

Courts vs. Judges, to Rick Smith, #52

Don't confuse courts with judges. Judges can be drafted into a court according to a regular rota, for a single case. A CAFC panel could be populated with a majority of judges from the regular geographic Circuits Courts of Appeal. This would eliminate the opportunity for "court shopping," but it would also prevent the judges from being professional patent judges, certainly to the point that they would not talk about their "right" to over-ride the Supreme Court.You can get the best of both worlds, so to speak.

The same principle would apply for a court of the first instance, such as a Patent Infringement Court. District Court judges from all over the United States would go, on sabbatical as it were, to Washington. Most of them would have the perception that this was their chance to be considered for an Appellate judgeship, with the eyes of Congress and the Supreme Court upon them, so they would want to do the best possible job.

As for juries, the best solution, assuming you cannot produce a jury which is truly impartial by reason of ignorance, is to have juries serve "out of subject." That is, juries for software/electronics patent cases would be composed of civil engineers, and juries for construction-oriented patent cases would be composed of electrical engineers and computer scientists.

Well paid...

the judges and juries in East Texas must be well paid by the patent trolls. I wonder if they get a percentage of the amounts awarded or just a flat fee? Paid in cash or in "gifts" such as cars, drugs, or hookers? It must be nice to live in a town where you can get rich being on a jury. And the judges? does anyone ever investigate to see if they are getting bribed?

Re: Re: Courts vs. Judges, to Rick Smith, #52

The reply to link seems to be working just fine for me.

Why do you ask?

I made two posts on this thread, the first was done as a comment to the main article, the second as a reply to Mike's comment about my thoughts. This post makes number 3 and is a reply to you. And everything looks correct on screen.

Re: Re: Re: Why east Texas

Re: This story gave me two thoughts...

"First (and sorry to all of you Big Government haters out there) is that all patent cases need to be handled by a special court that only deals in patent cases. This would be located in only one physical location. The jury, if one is involved, should be comprised of people who have knowledge of the industry in which the patent was issued for."

Yeah... like that'll ever happen.
You'd have a better chance at seeing Christ...
who would probably get sued by organized religion (in East Texas) for putting them out of business.

So, in the closing statement I hope the owner of Digital River stood up and gave the final closing speech when the verdict came down.

"Your Honor and Respected Members of the Court. I'd like to thank you for your judgement, unfortunately Digital River is unable to pay one red cent of this judgement, we will not be paying our legal representatives or any other legal fees or obligations incurred because of this judgement. We are immediately declaring bankruptcy under Chapter 11 Title 11 of the law, all employees of the company are forthwith made redundant, we apologize to our customers and creditors.

Then I expect the company's spokesman/president or whoever to turn to the representatives from Nexchange and tell them "Inform your clients they'll get their money when Hell freezes over!" and then turn to the judge and ask him "Your Honor, you've just destroyed a company. Are you happy? Are you proud of yourself?"

If even a few companies did this the courts would get the message and there would be fewer patent trolls doing this shit.